CHICAGO - A new assessment values Detroit's art collection as high as $4.6 billion, significantly higher than the $850 million estimate that the city's bankruptcy exit plan currently relies on.
A liquidation of the collection, however, would likely bring in only $1.8 billion or less, due to art market volatility and legal complications, according to the expert witness report by New York-based valuation firm ArtVest Partners LLC.
Detroit and the city-owned Detroit Institute of Arts museum hired ArtVest to perform the assessment after repeated requests from bond insurers and other creditors.
The value of the collection is central to the so-called grand bargain at the center of Detroit's bankruptcy exit plan. A group of private foundations, the Detroit Institute of Arts, and state of Michigan are pledging a stated $816 million to the city's pensions in exchange for preservation of the art collection.
A 2013 valuation by Christie's auction house put the value of the collection at between $450 million and $860 million. Christie's assessed only 4% or so of the 60,000-piece collection, while Michael Plummer, principal of ArtVest, evaluated the entire collection.
Financial creditors fighting the city's bankruptcy exit plan, led by Syncora Guarantee Inc. and Financial Guaranty Insurance Co., argue that the grand bargain deliberately undervalues the collection. Facing major losses under Detroit's current bankruptcy plan of debt adjustment, the insurers argued that the art is worth millions more than estimated in a city evaluation, and that the additional amount should be available to pay off debts.
ArtVest's high range estimate is $4.6 billion, with a midrange estimate of the collection value of $3.7 billion and low estimate of $2.8 billion.
After deducting for art market factors and legal complications that would hamper a fast liquidation as part of the bankruptcy case, the value of the collection would be between $1.1 billion, or up to $1.8 billion with no litigation and an orderly selling process.
The worth could decline to around $850 million if some of the collection is removed from possible sale.
Liquidating the collection in a "timely manner is unlikely, given the multiple levels of legal challenges as well as the financial risks and uncertain auction outcomes," Plummer said in the firm's 112-page report.
"Rather than being a source of cash to creditors or a burden on the current city, in fact the DIA is the single most important cultural asset the city currently owns for rebuilding the vitality of the city," Plummer wrote.
An orderly selling process would take five to eight years, he said, and cost the city $6 million a year for the costs of cataloguing and auctioning off the pieces. It would also require a discount rate of 12% based on the volatility of the art market.
"As precedent indicates, if the DIA were forced as a result of a court decision to sell its collection to settle debts that are not its own and either diminish or close the institution to pay off city debt, it is likely to face formidable legal obstacles and prolonged litigation," Plummer wrote.
In April, FGIC released its own review of the collection, by financial advisor Houlihan Lokey Capital Inc.
The firm contacted 38 parties, most of them hedge funds. Twenty-four expressed interest and four submitted formal indications of interest. The bids ranged from $895 million for only 116 pieces to $2 billion for the entire collection.
Plummer criticized the FGIC bids in his new report, arguing that two of the bids, from Chinese firms, would be withdrawn once they realized the "weakness of the DIA's Asian Art collection."
He said the four bids show the low level of interest in the collection, despite FGIC's claim to the contrary.
"I believe this low number of offers, and the nature and quality of the offers, is indicative of the perceived limitations and likelihood of prolonged litigation should a sale of any of the DIA collection be attempted," wrote Plummer.
The report also criticizes several ideas proposed by Christie's to monetize the collection as either implausible, unlikely, or not worthwhile.
It is unclear how much of the collection is restricted from sale, and Plummer noted that many buyers would be unwilling to buy art without clear title. Museums would not likely bid on any of the art because of art world's opposition to selling the art to satisfy the city's retirees or financial creditors.